The pre-Keynesian or classical economic theory viewed the long-run aggregate supply curve for the economy to be:
A. horizontal at the full-employment level of real GDP.
B. positively sloped at the full-employment level of real GDP.
C. vertical at the full-employment level of real GDP.
D. backward bending at the full-employment level of real GDP.
Answer: C
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The exchange rate can be very volatile, yet the quantity of dollars traded might not change much because
A) the Fed is constantly intervening by buying and selling dollars. B) there is only limited quantity of dollars in the foreign exchange market. C) supply of dollars and the demand for dollars often change in opposite directions. D) supply of dollars and the demand for dollars often change in the same directions. E) both the demand curve for dollars and the supply curve of dollars are horizontal.
Most Keynesians suggest that the Fed
A) use discretion in setting monetary policy. B) use fiscal policy to combat unemployment in the short run. C) follow a rule, such as keeping the money growth rate at 3%, regardless of the state of the economy. D) use fiscal policy to combat inflation in the long run.
The New Keynesian transmission mechanism for monetary policy is characterized by
A) helicopter drops of money. B) money having an impact on the real interest rate. C) banks using money injections for business loans. D) the government buying goods with fresh money.
In general, the income effect of an increase in the price of a normal good:
A. will cause the individual to buy more of that good because they have relatively more income. B. will cause the individual to buy less of that good because they have relatively less income. C. will cause the individual to buy more of that good because they have relatively less income. D. will cause the individual to buy less of that good because they have relatively more income.